Buzz Bits: Dow and Nasdaq End in the Red
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Bell Buzz - Todd Harrison - 3:48 PM
- Survey say? The VXO is flat. That's nuttier than Austin Power's coffee.
- Why does the movie "Black Hawk Down!" keep popping into my head?
- What's your over/under on Fannie Mae (FNM) nationalization?
- That Rosenberg note (on the correlation between BAA spreads and equity performance, not Julius and Ethel) is hanging in the back of my crowded keppe. And make no mistake---it's very crowded up there.
- Kick-boxing takes on an entirely new flava when your opponent hits back. Lucky for me I've got "the hammer' in the form of my right cross.
- Google (GOOG) down $20. Man, you can learn a lot just by watching.
- Pennant. Still there. Stay tuned.
- On the bright side, tomorrow's already the Hump. Igor's gotta be psyched!
- A'ight, I'm outie... or, at least from the Buzz. I'll see you in the ayem, Minyans. Have a mindful night.
Crude Answers - Kevin Depew - 2:57 PM
If crude is the reason, then how do we explain this?
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Is it that crude wasn't the reason until it hit $85? And then $100? Why now? As Toddo noted below, the real danger for stocks is crude oil at $50/bbl, and what that implies about demand, not at $150/bbl.
Not So Whole Foods - Fil Zucchi - 1:08 PM
Whole Foods (WFMI) reports its quarter this afternoon. Rev. and EPS estimates are $2.4 billion and $0.36 EPS, and the more important same-store-sales growth estimate is 8.5%. I have no feel for what the company will report. The accounting for the acquisition of Wild Oats should allow enough wiggle room to massage the numbers in WFMI's favor, but none of the basic issues that have kept me short WFMI for more than a year have gone away, namely:
- This is a broken hyper-growth / cult story whose multiple still has not caught on with the reality that WFMI is just another grocery store, and grocery stores trade for mid-teens EPS not mid-30's.
- With grain and commodity prices skyrocketing, WFMI's business model of just "passing costs on to the consumers, hence inflation is not an issue" is likely to get a nasty dose of reality sooner than later, and contribute to margin and multiple compression.
- The "tapped out consumer" argument has not stuck to WFMI for now, because - and reasonably so - people don't cut back on their food spending until they absolutely have to. Given what we have seen from other high end retailers, the consumer may just have reached the "have to" stage.
- From Safeway (SWY) to Wal-Mart (WMT), the competition for organic food is only getting stiffer.
- The company not only doesn't generate any free cash flow after new store openings, it's now going into debt to keep the adding stores.
Until these factors were to drastically change, in my opinion WFMI remains a rare long-term short, regardless what near-term price swings may be.
Position in WFMI
Vale Value - Ryan Krueger - 11:55 AM
I mentioned two weeks ago that I believed the contracts being drawn up within certain spots of the Materials (XLB) sector would call into question the notion that everybody is slowing. Brazil's iron ore miner Vale (RIO) inked a few out on the tape today that do just that, and define pricing power. The stock has remained one of my longest longs for many years, but they are far from alone in this story.
The sector is now our most over-weight as well. Don't forget, Materials still make up less than 4% of the S&P, eerily similar to when we double and then triple-weighted Energy when it was 6% when crude was $20.
As I mentioned in my article Friday I am not ignoring the considerable risks in owning just about any asset class, as so many are now commonly owned by funds that are so close to liquidation risks depending on the way the wind blows short term.
But at this point I wonder if the risk isn't disguised as "value" like the "cheap" U.S. stocks. Using data I receive from Bespoke Research, the US PEG ratio – p/e over growth rate, used all the time for stocks but not often enough on countries – places it second to last in a list of 22.
I'll continue to take my chances by owning what growing economies are importing (some gladly paying huge price hikes, we're reminded today), and avoiding what they export.
Sandwiched right in the middle of this notion I have that the world isn't likely to end after all and a lot of things are going to cost a lot more as a result, I put on a very lonely trade earlier this month while furious rate cutting spit into the forgotten winds of inflation. With tight stops I shorted the Long Bond. There are far better technicians on MV than I and my trade was done for different reasons, but I can't help but notice what looks like an expensive double-bottom in falling rates on the Long Bond from my perch.
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